Chapter 3 — Held-for-Sale Classification Criteria and Related Measurement

Chapter 3 — Long-Lived Assets to Be Sold

3.1 Overview

ASC 360-10

Long-Lived Assets Classified as Held for Sale

35-37 This guidance addresses the accounting for expected disposal losses for long-lived assets and asset groups that are classified as held for sale but have not yet been sold. See paragraphs 360-10-45-9 through 45-11 for the initial criteria to be met for classification as held for sale.

An asset (disposal group) is classified as held for sale once all of the criteria in ASC 360-10-45-9 through 45-11 are met. The entity recognizes a loss, if necessary, to adjust the asset’s (disposal group’s) carrying amount to its fair value less cost to sell in the period in which the held-for-sale criteria are met. The carrying amount of the asset (disposal group) is adjusted in each reporting period for subsequent increases or decreases in its fair value less cost to sell, except that the adjusted carrying amount cannot exceed the carrying amount of the asset (disposal group) at the time it was initially classified as held for sale. Any gain or loss from the sale of the asset (disposal group) that was not previously recognized is recognized on the date of sale. Long-lived assets are not depreciated or amortized while they are classified as held for sale.

The held-for-sale guidance and the discontinued-operations presentation guidance in ASC 205 and ASC 360 apply when an entity is planning to sell or otherwise dispose of parts of its operations, not when the entity is being sold in its entirety. See Example 5-2 for more information.

3.2 Grouping Assets to Be Sold

Assets may be sold individually or as part of a group of assets (and possibly liabilities). The ASC master glossary defines a disposal group as follows:

A disposal group for a long-lived asset or assets to be disposed of by sale or otherwise represents assets to be disposed of together as a group in a single transaction and liabilities directly associated with those assets that will be transferred in the transaction. A disposal group may include a discontinued operation along with other assets and liabilities that are not part of the discontinued operation.

A disposal group may include not only long-lived assets that are within the scope of ASC 360-10 but also other assets such as receivables, inventory, indefinite-lived intangible assets, or goodwill. A disposal group may also “include a discontinued operation along with other assets and liabilities that are not part of the discontinued operation.” In addition, a disposal group may include liabilities directly associated with the assets that will be transferred to the buyer. Examples of such liabilities include environmental obligations, asset retirement obligations, and mortgage obligations.

Further, certain operations to be sold may qualify for discontinued-operations reporting even if the assets associated with those operations do not contain long-lived assets that are within the scope of ASC 360-10 (e.g., an equity method investment). For that reason, the same held-for-sale criteria in ASC 360-10-45-9 were incorporated into ASC 205-20-45-1E to allow entities to classify a component of an entity as held for sale even though the component may not include long-lived assets that are within the scope of ASC 360-10.

Connecting the Dots

For simplicity, the term “disposal group” is used throughout this publication to refer to an asset, a group of assets (and possibly liabilities), or a component of an entity that is classified as held for sale by the entity.

3.3 Held-for-Sale Criteria

ASC 360-10 {ASC 205-20}

360-10-45-9 {205-20-45-1E} A long-lived asset (disposal group) to be sold {component of an entity or a group of components of an entity, or a business or nonprofit activity (the entity to be sold)}, shall be classified as held for sale in the period in which all of the following criteria are met:

Management, having the authority to approve the action, commits to a plan to sell the asset (disposal group) {entity to be sold}.
The asset (disposal group) {entity to be sold} is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (disposal groups) {entities to be sold}. (See Examples 5 through 7 [paragraphs 360-10-55-37 through 55-42], which illustrate when that criterion would be met.)
An active program to locate a buyer {or buyers} and other actions required to complete the plan to sell the asset (disposal group) {entity to be sold} have been initiated.
The sale of the asset (disposal group) {entity to be sold} is probable, and transfer of the asset (disposal group) {entity to be sold} is expected to qualify for recognition as a completed sale, within one year, except as permitted by paragraph 360-10-45-11 {205-20-45-1G}. (See Example 8 [paragraph 360-10-55-43], which illustrates when that criterion would be met.) The term probable refers to a future sale that is likely to occur.
The asset (disposal group) {entity to be sold} is being actively marketed for sale at a price that is reasonable in relation to its current fair value. The price at which a long-lived asset {an entity to be sold} is being marketed is indicative of whether the entity currently has the intent and ability to sell the asset (disposal group) {entity to be sold}. A market price that is reasonable in relation to fair value indicates that the asset (disposal group) {entity to be sold} is available for immediate sale, whereas a market price in excess of fair value indicates that the asset (disposal group) {entity to be sold} is not available for immediate sale.
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

The sections below address the criteria for reporting a disposal group as held for sale. Because the held-for-sale criteria in ASC 360-10-45-9 and ASC 205-20-45-1E are the same, the discussion of the criteria in these sections applies to both disposal groups under ASC 360-10-45-9 and components of an entity under ASC 205-20-45-1E.

Real estate entities should consider the guidance in ASC 970-360. Specifically, ASC 970-360-35-3 states, in part:

The provisions in Subtopic 360-10 for long-lived assets to be disposed of by sale shall apply to a real estate project, or parts thereof, that is substantially completed and that is to be sold. The provisions in that Topic for long-lived assets to be held and used shall apply to real estate held for development, including property to be developed in the future as well as that currently under development, and to a real estate project, or parts thereof, that is substantially completed and that is to be held and used (for example, for rental).

Thus, the held-for-sale criteria discussed in the sections below do not apply to real estate projects, or portions of a real estate project, that are substantially complete and that are to be sold. These properties are considered held for sale regardless of whether they meet the held-for-sale criteria in ASC 360-10 (ASC 205-20).

3.3.1 Management, Having the Authority to Approve the Action, Commits to a Plan

To demonstrate that it is committed to a plan to sell, an entity should ensure that the plan is formal and documented, identify the assets (and liabilities) to be disposed of, and specify the actions necessary and expected timing to complete the plan. We believe that a request from the board of directors or management to explore options for selling would not constitute commitment to a plan to sell.

If, in addition to management approval, approval from the board of directors or shareholders to sell is required or is sought by management, we believe that this criterion cannot be met until such approval is obtained unless there is evidence that approval has been effectively obtained. Approval might be effectively obtained, for example, if approval from shareholders is required and shareholders holding a majority of the voting shares have signed irrevocable agreements stating that they will vote their shares in favor of the disposal.

Because of the increased governance power of the bankruptcy court or creditors’ committee, we believe that when an entity has filed for bankruptcy, the level of authority that can commit to a plan to sell may be the bankruptcy court or the creditors’ committee. Therefore, this criterion may not be met until such approval is obtained.

Because this criterion is related to an evaluation of the entity’s commitment to a plan to sell, the criterion in ASC 360-10-45-9(a) (ASC 205-20-45-1E(a)) may be met even if the entity is awaiting third-party approval to sell the disposal group (e.g., approval from a government agency, such as the Federal Trade Commission (FTC) or the Federal Communications Commission (FCC), or approval from a lender). However, an entity generally would have to assess any required third-party approval under criterion (d) (see Section 3.3.4) to determine whether the sale is probable.

3.3.2 Available for Immediate Sale in Its Present Condition

The assets to be sold are available for immediate sale if the entity has the intent and ability to sell them in their current condition. Some planned actions by the seller before a disposal may indicate that the assets are not available for immediate sale, while other planned actions in the normal course of business (i.e., usual and customary) might indicate that they are.

Example 3-1

Completion of Plant Overhauls Before Disposition by Sale

On March 1, 20X2, Company A announces plans to close and sell one of its manufacturing facilities. Company A will be required to perform certain major building and equipment overhauls so that it can market the facility effectively. The facility is closed on April 30, 20X2, and the overhauls are completed on May 31, 20X2. After the overhauls are completed, A begins marketing the facility and the facility is sold on July 15, 20X2.

In this example, the criterion in ASC 360-10-45-9(b) (ASC 205-20-45-1E(b)) would not be met as of March 31, 20X2, because the manufacturing facility is not “available for immediate sale in its present condition.”

Example 3-2

Capital Expenditures Related to a Held-for-Sale Component in the Normal Course of Business

Company G owns and operates cable television franchises throughout the United States. In June 20X7, G commits to a plan and enters into an agreement to sell its Midwestern franchises to Company J; the sale is subject to approval by the FCC. The sales agreement requires G, while waiting for regulatory approval, to continue to expand the cable networks of the franchises to be sold, since new subscribers are requesting service. Such capital expenditures are common to all cable franchises, and G would have to make these normal and customary expenditures even if it did not sell the franchises.

In this example, the criterion in ASC 360-10-45-9(b) (ASC 205-20-45-1E(b)) would be met because the capital expenditures that G is required to make are usual and customary for the operation of such assets.

Examples 5–7 in the implementation guidance in ASC 360-10-55-37 through 55-42 illustrate situations in which a disposal group is both available and not available for immediate sale in its present condition. Because the held-for-sale criteria in ASC 360-10 are the same as those in ASC 205-20, we believe that these examples also provide interpretive guidance that applies to disposals within the scope of ASC 205-20.

ASC 360-10

Example 5: Plan to Sell Headquarters Building

55-37 This Example illustrates the classification as held for sale of a long-lived asset (disposal group) in accordance with paragraph 360-10-45-9(b).

55-38 An entity commits to a plan to sell its headquarters building and has initiated actions to locate a buyer. The following illustrate situations in which the criterion in paragraph 360-10-45-9(b) would or would not be met:

The entity intends to transfer the building to a buyer after it vacates the building. The time necessary to vacate the building is usual and customary for sales of such assets. The criterion in paragraph 360-10-45-9(b) would be met at the plan commitment date.
The entity will continue to use the building until construction of a new headquarters building is completed. The entity does not intend to transfer the existing building to a buyer until after construction of the new building is completed (and it vacates the existing building). The delay in the timing of the transfer of the existing building imposed by the entity (seller) demonstrates that the building is not available for immediate sale. The criterion in paragraph 360-10-45-9(b) would not be met until construction of the new building is completed, even if a firm purchase commitment for the future transfer of the existing building is obtained earlier.

Example 6: Plan to Sell Manufacturing Facility With Backlog of Orders

55-39 This Example illustrates the classification as held for sale of a long-lived asset (disposal group) in accordance with paragraph 360-10-45-9(b).

55-40 An entity commits to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. At the plan commitment date, there is a backlog of uncompleted customer orders. The following illustrate situations in which the criterion in paragraph 360-10-45-9(b) would or would not be met:

The entity intends to sell the manufacturing facility with its operations. Any uncompleted customer orders at the sale date would transfer to the buyer. The transfer of uncompleted customer orders at the sale date will not affect the timing of the transfer of the facility. The criterion in paragraph 360-10-45-9(b) would be met at the plan commitment date.
The entity intends to sell the manufacturing facility, but without its operations. The entity does not intend to transfer the facility to a buyer until after it ceases all operations of the facility and eliminates the backlog of uncompleted customer orders. The delay in the timing of the transfer of the facility imposed by the entity (seller) demonstrates that the facility is not available for immediate sale. The criterion in paragraph 360-10-45-9(b) would not be met until the operations of the facility cease, even if a firm purchase commitment for the future transfer of the facility is obtained earlier.

Example 7: Intent to Sell Acquired Real Estate Foreclosure

55-41 This Example illustrates the classification as held for sale of a long-lived asset (disposal group) in accordance with paragraph 360-10-45-9(b).

55-42 An entity acquires through foreclosure a real estate property that it intends to sell. The following illustrate situations in which the criterion in paragraph 360-10-45-9(b) would not be met:

The entity does not intend to transfer the property to a buyer until after it completes renovations to increase its sales value. The delay in the timing of the transfer of the property imposed by the entity (seller) demonstrates that the property is not available for immediate sale. The criterion in paragraph 360-10-45-9(b) would not be met until the renovations are completed.
After the renovations are completed and the property is classified as held for sale but before a firm purchase commitment is obtained, the entity becomes aware of environmental damage requiring remediation. The entity still intends to sell the property. However, the entity does not have the ability to transfer the property to a buyer until after the remediation is completed. The delay in the timing of the transfer of the property imposed by others before a firm purchase commitment is obtained demonstrates that the property is not available for immediate sale. The criterion in paragraph 360-10-45-9(b) would not continue to be met. The property would be reclassified as held and used in accordance with paragraph 360-10-45-7.

3.3.3 An Active Program to Locate a Buyer and Other Actions Required to Complete the Plan Have Been Initiated

To meet this criterion, an entity must be actively seeking a buyer. Different entities use different processes for identifying buyers. Some entities will direct their employees to market the assets to be sold, while others will hire third parties (e.g., investment bankers or brokers). Evidence that employees have been directed to meet with potential buyers or that third parties have been engaged to market the assets would indicate that the entity has an active program to locate a buyer.

3.3.4 The Sale Is Probable and Is Expected to Be Complete Within One Year

The meaning of the term “probable” in this context is the same as that in ASC 450-20-20 and refers to a future sale that is likely to occur. There is no bright-line or quantitative threshold for determining the meaning of probable; however, it is a higher threshold than more likely than not. This criterion is often the most difficult to assess because it requires management to consider the likelihood that the sale will be completed. As part of this assessment, management would typically consider factors such as its ability to close past sales transactions, the ability of other entities in the same or similar industries to complete sales transactions in the current environment, the market in which the entity operates, and the buyer’s ability to obtain any necessary financing. Entities should also consider whether third-party approval (e.g., approval from a government agency, such as the FTC or the FCC, or approval from a lender) may be required and the likelihood of obtaining such approval (see examples below). This criterion should also be considered in conjunction with criterion (e) (see Section 3.3.5) because the price at which the disposal group is being marketed is expected to affect the probability that the sale will occur.

Example 8 in the implementation guidance in ASC 360-10-55-43 illustrates situations in which proposed dispositions are not expected to qualify as completed sales.

ASC 360-10

Example 8: Proposed Disposition Not Expected to Qualify as Completed Sale

55-43 This Example illustrates the classification as held for sale of a long-lived asset (disposal group) in accordance with the criterion in paragraph 360-10-45-9(d). The following illustrates situations in which that criterion would not be met:

An entity that is a commercial leasing and finance company is holding for sale or lease equipment that has recently come off lease and the ultimate form of a future transaction (sale or lease) has not yet been determined.
An entity commits to a plan to sell an asset that is in use and lease back that asset; however, the transfer of the asset will not be accounted for as a sale and leaseback transaction because the buyer-lessor does not obtain control of the asset based on the guidance in paragraphs 842-40-25-1 through 25-3. The asset would continue to be classified as held and used following the appropriate guidance in Sections 360-10-35, 360-10-45, and 360-10-50.

To meet this criterion, the entity must also expect that the disposal group will be sold within one year from the date on which it meets the held-for-sale criteria. However, ASC 360-10-45-11 and ASC 205-20-45-1G contain an exception to the one-year requirement if the delay results from events or circumstances beyond the entity’s control and management continues to be committed to the plan of sale and is performing actions necessary to respond to the conditions causing the delay. See Examples 9–11 in the implementation guidance in ASC 360-10-55-44 through 55-49 below.

Example 8 in ASC 360-10 includes guidance on meeting this criterion for sale-and-leaseback transactions. The guidance differs depending on whether the entity is applying ASC 842 or ASC 840. Under ASC 842, if the entity plans to enter into a sale-and-leaseback transaction and it is probable that the sale requirements under ASC 842-20 will be met within a year, this criterion would most likely be met. (See Deloitte’s Roadmap Leases for more information.) Under ASC 840, if the entity plans to enter into a sale-and-leaseback transaction for more than a minor portion of a property, this criterion would not be met.

ASC 360-10 {ASC 205-20}

360-10-45-11 {205-20-45-1G} Events or circumstances beyond an entity’s control may extend the period required to complete the sale of a long-lived asset (disposal group) {an entity to be sold} beyond one year. An exception to the one-year requirement in paragraph 360-10-45-9(d) {205-20-45-1E(d)} shall apply in the following situations in which such {those} events or circumstances arise:

If at the date {that} an entity commits to a plan to sell a long-lived asset (disposal group) {an entity to be sold}, the entity reasonably expects that others (not a buyer) will impose conditions on the transfer of the asset (group) {entity to be sold} that will extend the period required to complete the sale and both of the following conditions are met:
1. Actions necessary to respond to those conditions cannot be initiated until after a firm purchase commitment is obtained.
2. A firm purchase commitment is probable within one year. (See Example 9 [paragraph 360-10-55-44], which illustrates that situation.)
If an entity obtains a firm purchase commitment and, as a result, a buyer or others unexpectedly impose conditions on the transfer of a long-lived asset (disposal group) {an entity to be sold} previously classified as held for sale that will extend the period required to complete the sale and both of the following conditions are met:
1. Actions necessary to respond to the conditions have been or will be timely initiated.
2. A favorable resolution of the delaying factors is expected. (See Example 10 [paragraph 360-10-55-46], which illustrates that situation.)
If during the initial one-year period, circumstances arise that previously were considered unlikely and, as a result, a long-lived asset (disposal group) {an entity to be sold} previously classified as held for sale is not sold by the end of that period and all of the following conditions are met:
1. During the initial one-year period{,} the entity initiated actions necessary to respond to the change in circumstances.
2. The asset (group) {entity to be sold} is being actively marketed at a price that is reasonable given the change in circumstances.
3. The criteria in paragraph 360-10-45-9 {205-20-45-1E} are met. (See Example 11 [paragraph 360-10-55-48], which illustrates that situation.)

Examples 9–11 in the implementation guidance in ASC 360-10-55-44 through 55-49 illustrate situations that may or may not qualify for an exception to the one-year requirement.

ASC 360-10

Example 9: Regulatory Approval of Sale Required

55-44 This Example illustrates an exception to the one-year requirement in paragraph 360-10-45-9(d) to complete the sale of a long-lived asset (disposal group) (see paragraph 360-10-45-11). The following illustrates situations in which the conditions for an exception to the criterion in paragraph 360-10-45-9(d) would be met.

55-45 An entity in the utility industry commits to a plan to sell a disposal group that represents a significant portion of its regulated operations. The sale will require regulatory approval, which could extend the period required to complete the sale beyond one year. Actions necessary to obtain that approval cannot be initiated until after a buyer is known and a firm purchase commitment is obtained. However, a firm purchase commitment is probable within one year. In that situation, the conditions in paragraph 360-10-45-11(a) for an exception to the one-year requirement in paragraph 360-10-45-9(d) would be met.

Example 10: Environmental Damage Identified During Buyer’s Inspection

55-46 This Example illustrates an exception to the one-year requirement in paragraph 360-10-45-9(d) to complete the sale of a long-lived asset (disposal group) (see paragraph 360-10-45-11). The following illustrates a situation in which the conditions for an exception to the criterion in paragraph 360-10-45-9(d) would be met.

55-47 An entity commits to a plan to sell a manufacturing facility in its present condition and classifies the facility as held for sale at that date. After a firm purchase commitment is obtained, the buyer’s inspection of the property identifies environmental damage not previously known to exist. The entity is required by the buyer to remediate the damage, which will extend the period required to complete the sale beyond one year. However, the entity has initiated actions to remediate the damage, and satisfactory remediation of the damage is probable. In that situation, the conditions in paragraph 360-10-45-11(b) for an exception to the one-year requirement in paragraph 360-10-45-9(d) would be met.

Example 11: Deterioration of Market Conditions

55-48 This Example illustrates an exception to the one-year requirement in paragraph 360-10-45-9(d) to complete the sale of a long-lived asset (disposal group) (see paragraph 360-10-45-11).

55-49 An entity commits to a plan to sell a long-lived asset and classifies the asset as held for sale at that date. The following illustrates situations in which the conditions for an exception to the criterion in paragraph 360-10-45-9(d) would or would not be met:

During the initial one-year period, the market conditions that existed at the date the asset was classified initially as held for sale deteriorate and, as a result, the asset is not sold by the end of that period. During that period, the entity actively solicited but did not receive any reasonable offers to purchase the asset and, in response, reduced the price. The asset continues to be actively marketed at a price that is reasonable given the change in market conditions, and the criteria in paragraph 360-10-45-9 are met. In that situation, the conditions in paragraph 360-10-45-11(c) for an exception to the one-year requirement in paragraph 360-10-45-9(d) would be met. At the end of the initial one-year period, the asset would continue to be classified as held for sale.
During the following one-year period, market conditions deteriorate further, and the asset is not sold by the end of that period. The entity believes that the market conditions will improve and has not further reduced the price of the asset. The asset continues to be held for sale, but at a price in excess of its current fair value. In that situation, the absence of a price reduction demonstrates that the asset is not available for immediate sale as required by the criterion in paragraph 360-10-45-9(b). In addition, the criterion in paragraph 360-10-45-9(e) requires that an asset be marketed at a price that is reasonable in relation to its current fair value. Therefore, the conditions in paragraph 360-10-45-11(c) for an exception to the one-year requirement in paragraph 360-10-45-9(d) would not be met. The asset would be reclassified as held and used in accordance with paragraph 360-10-35-44.

3.3.5 Actively Marketed at a Reasonable Price

The price at which the disposal group is being marketed indicates whether management is committed to selling it and the likelihood that a sale will be completed. A market price that is reasonable compared with the disposal group’s fair value indicates that it is available for immediate sale, whereas a market price in excess of fair value indicates that it is not available for immediate sale or that it is not probable that the sale will occur.

3.3.6 Unlikely That Significant Changes Will Be Made to the Plan or the Plan Will Be Withdrawn

As discussed above, we believe that for an entity to meet the criterion discussed in Section 3.3.1, it should have a formal and documented plan that identifies the assets (and liabilities) to be sold, actions necessary to complete the plan, and expected timing of the plan’s completion. Even when the plan is formal and documented, an entity must evaluate the plan to determine whether significant changes are unlikely. When evaluating this criterion, the entity should consider the specific facts and circumstances related to the plan as well as whether it has a history of changing its plans of sale. Further, entities undergoing or expecting management changes (e.g., new CEO, new board members) should consider whether new management will be committed to the plan or will seek to modify or withdraw the plan.

3.4 Including Specific Items in a Disposal Group

The sections below provide guidance on determining whether certain items should be included in a disposal group.

3.4.1 Goodwill

ASC 350-20

40-1 When a reporting unit is to be disposed of in its entirety, goodwill of that reporting unit shall be included in the carrying amount of the reporting unit in determining the gain or loss on disposal.

40-2 When a portion of a reporting unit that constitutes a business (see Section 805-10-55) or nonprofit activity is to be disposed of, goodwill associated with that business or nonprofit activity shall be included in the carrying amount of the business or nonprofit activity in determining the gain or loss on disposal.

40-3 The amount of goodwill to be included in that carrying amount shall be based on the relative fair values of the business or nonprofit activity to be disposed of and the portion of the reporting unit that will be retained. For example, if a reporting unit with a fair value of $400 is selling a business or nonprofit activity for $100 and the fair value of the reporting unit excluding the business or nonprofit activity being sold is $300, 25 percent of the goodwill residing in the reporting unit would be included in the carrying amount of the business or nonprofit activity to be sold.

40-4 However, if the business or nonprofit activity to be disposed of was never integrated into the reporting unit after its acquisition and thus the benefits of the acquired goodwill were never realized by the rest of the reporting unit, the current carrying amount of that acquired goodwill shall be included in the carrying amount of the business or nonprofit activity to be disposed of.

40-5 That situation might occur when the acquired business or nonprofit activity is operated as a standalone entity or when the business or nonprofit activity is to be disposed of shortly after it is acquired.

40-6 Situations in which the acquired business or nonprofit activity is operated as a standalone entity are expected to be infrequent because some amount of integration generally occurs after an acquisition.

40-7 When only a portion of goodwill is allocated to a business or nonprofit activity to be disposed of, the goodwill remaining in the portion of the reporting unit to be retained shall be tested for impairment in accordance with paragraphs 350-20-35-3A through 35-13 using its adjusted carrying amount.

Entities may need to include goodwill in a disposal group even if goodwill was not assigned to the asset group while the assets were classified as held and used in accordance with ASC 360-10-35-26 (see Section 2.3.2).

The following table describes how goodwill should be allocated to disposal groups in various circumstances:

Assigning Goodwill to Disposal Groups
Disposal group is a reporting unit or a group of reporting units.	The goodwill assigned to the reporting unit(s) is included in the carrying amount of the disposal group in accordance with ASC 350-20-40-1.
Disposal group represents a portion of one or more reporting units and constitutes a business under ASC 805-10.	Goodwill should be allocated to the disposal group in accordance with ASC 350-20-40-2 through 40-6, generally on a relative fair value basis (unless the business was never integrated into the reporting unit). In addition, under ASC 350-20-40-7, the goodwill remaining in the portion of the reporting unit to be retained by the entity must be tested for impairment.
Disposal group represents a portion of one or more reporting units but does not constitute a business under ASC 805-10.	Goodwill should not be allocated to the disposal group because goodwill is only derecognized when a business is disposed of or when goodwill is impaired. However, the entity should consider whether the disposal would result in a triggering event and thus whether the entity would be required to perform impairment testing of the goodwill of the reporting unit(s) from which the assets were disposed of.

When a disposal group is classified as held for sale and meets the criteria for reporting in discontinued operations, an entity must reclassify the assets and liabilities of the disposal group in the prior-period balance sheets (see Section 7.2). We believe that goodwill related to a disposal group that is a reporting unit or that meets the definition of a business should also be included with the assets and liabilities of the discontinued operation in those prior periods.

When determining whether goodwill should be allocated to a disposal of a portion of a reporting unit, entities should apply the definition of a business, as clarified in ASU 2017-01, regardless of whether the assets disposed of were acquired and determined to be a business under previous guidance. For more information about determining whether a disposal group meets the definition of a business in ASC 805-10, see Section 2.4 of Deloitte’s Roadmap Business Combinations.

In addition, see Section 7.4.1 for guidance on including goodwill impairment charges in discontinued operations.

Example 3-3

Assigning Goodwill to a Disposal Group

Company A acquires Company B in a business combination. Company A retains B as a separate subsidiary, and B elects to apply pushdown accounting in its separate financial statements. Company A recognizes goodwill of $200 from the acquisition of B in its consolidated financial statements. In applying pushdown accounting, B recognizes $200 of goodwill in its separate financial statements. Company A determines that B represents a separate reporting unit in accordance with ASC 350-20.

On the basis of the expected synergies from the acquisition of B, A assigns $150 of the $200 of recognized goodwill to B and $50 to Subsidiary X, a different reporting unit of A. For purposes of A’s consolidated financial statements, when A tests its B reporting unit for impairment, it will test goodwill of $150, which was the amount assigned to the B reporting unit. ASC 350-20 also requires that subsidiaries that issue separate financial statements test goodwill at the subsidiary level by using the subsidiary’s reporting units. Subsidiary B will test the goodwill of $200 recognized in its separate financial statements. Any impairment loss recognized in B’s separate financial statements would not necessarily result in an impairment loss in A’s consolidated financial statements, but it may represent a triggering event for A.

If A were to dispose of B in its entirety, A would only include the $150 of assigned goodwill in determining the gain or loss on the disposal of B. To appropriately account for the gain or loss on disposal in its consolidated financial statements, A would therefore need to make an adjustment at the consolidated level to exclude $50 of goodwill assigned to X from the disposed assets. Just as if A were to dispose of X in its entirety, A would include the assigned goodwill amount of $50 in calculating the gain or loss on the disposal. To appropriately account for the gain or loss on disposal, A would therefore need to make an adjustment at the consolidated level to include the $50 of goodwill assigned to X with X’s disposed assets.

3.4.2 Cumulative Translation Adjustment and Other Items of Accumulated Other Comprehensive Income

ASC 830-30-45-13 states, in part, that “an entity that has committed to a plan that will cause the cumulative translation adjustment [CTA] for an equity method investment or a consolidated investment in a foreign entity to be reclassified to earnings shall include the [CTA] as part of the carrying amount of the investment when evaluating that investment for impairment.” Therefore, the carrying value of a disposal group should include the CTA that will be eliminated upon sale once the disposal group is classified as held for sale. If unrealized gains in AOCI are not included in the carrying amount of the disposal group, a loss may be recognized in the period in which the disposal group is classified as held for sale, and a subsequent gain may be recognized when the disposition occurs. Alternatively, if unrealized losses in AOCI are not included in the carrying amount of the disposal group, a loss that might otherwise be measured might be deferred until the disposition occurs.

The CTA should remain classified in equity until the disposal group is sold (or disposed of other than by sale) on the basis of the guidance in ASC 830-30-40-1, which states:

Upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity, the amount attributable to that entity and accumulated in the translation adjustment component of equity shall be both:

Removed from the separate component of equity
Reported as part of the gain or loss on sale or liquidation of the investment for the period during which the sale or liquidation occurs.

For an illustration of how OCI would be treated in the testing of the disposal of a foreign entity for impairment, see Example 5-24 in Deloitte’s Roadmap Foreign Currency Matters.

Furthermore, the FASB’s implementation group regarding foreign currency matters indicated in its meeting minutes that:

Paragraph 14 [of FASB Statement 52 (codified in ASC 830-30-40-1)] states that the translation component is removed from equity and reported as part of the gain or loss on sale or complete or substantially complete liquidation. We believe the timing of loss and gain recognition remains consistent with the provisions of [FASB Statement 5 (codified in ASC 450)] and APB Opinion 30 (codified in ASC 225-20)].

Therefore, the CTA should be reclassified out of equity in the period in which the disposal occurs but the CTA balance related to prior periods should not be reclassified.

While ASC 830-30-40-1 and ASC 830-30-45-13 address foreign currency translation adjustments, there is no specific U.S. GAAP guidance on the treatment of other items included in AOCI (e.g., unrealized holding gains and losses on available-for-sale debt securities, gains and losses related to postretirement benefits) in the assessment of a disposal group for impairment. However, we believe that it is appropriate to analogize to that guidance for all items of AOCI. See Section 2.3.6 for more information about situations in which an asset group does not yet meet the criteria to be classified as held for sale. For more information about testing a foreign entity for impairment and the reclassification of the CTA out of equity, see Deloitte’s Roadmap Foreign Currency Matters.

3.5 Measuring the Carrying Value of a Disposal Group Upon Classification as Held for Sale

ASC 360-10

Long-Lived Assets Classified as Held for Sale

35-37 This guidance addresses the accounting for expected disposal losses for long-lived assets and asset groups that are classified as held for sale but have not yet been sold. See paragraphs 360-10-45-9 through 45-11 for the initial criteria to be met for classification as held for sale.

35-41 See paragraphs 310-20-35-12D and 310-20-40-12 for guidance related to determination of cost basis for foreclosed assets under Subtopic 310-20 and the measurement of cumulative losses previously recognized under paragraph 360-10-35-40.

35-42 See paragraphs 830-30-45-13 through 45-15 for guidance regarding the application of Topic 830 to an investment being evaluated for impairment that will be disposed of.

Accounting While Held for Sale

35-43 A long-lived asset (disposal group) classified as held for sale shall be measured at the lower of its carrying amount or fair value less cost to sell. If the asset (disposal group) is newly acquired, the carrying amount of the asset (disposal group) shall be established based on its fair value less cost to sell at the acquisition date. A long-lived asset shall not be depreciated (amortized) while it is classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale shall continue to be accrued.

ASC 205-20

45-3C A gain or loss recognized on the disposal (or loss recognized on classification as held for sale) of a discontinued operation shall be calculated in accordance with the guidance in other Subtopics. For example, if a discontinued operation is within the scope of Topic 360 on property, plant, and equipment, an entity shall follow the guidance in paragraphs 360-10-35-37 through 35-45 and 360-10-40-5 for calculating the gain or loss recognized on the disposal (or loss on classification as held for sale) of the discontinued operation.

ASC 360-10 provides guidance on how to measure a disposal group upon its classification as held for sale. Although ASC 205-20 does not provide such guidance, it refers to the guidance in ASC 360-10 on measuring long-lived assets or the guidance in other standards on measuring assets that are not within the scope of ASC 360-10. However, ASC 205-20 does not incorporate all of the guidance from ASC 360-10. To the extent that ASC 205-20 does not provide specific guidance, we believe that entities should look to the guidance in ASC 360-10. Therefore, assets (and liabilities) that are classified as held for sale are measured in the same manner (i.e., lower of carrying amount or fair value less cost to sell) regardless of whether they qualify for discontinued-operations reporting.

A disposal group that is classified as held for sale is measured “at the lower of its carrying amount or fair value less cost to sell” in the period in which the held-for-sale criteria are met. To determine the carrying value of the disposal group, an entity must determine whether any of the assets in the disposal group are impaired before comparing the group’s carrying value with its fair value less cost to sell (see Section 3.5.1). If the carrying amount of the disposal group exceeds its fair value less cost to sell even after any impairment charges have been recognized, the entity will recognize an additional loss to write the disposal group down to its fair value less cost to sell.

Under ASC 205-20-45-11, “Any loss recognized on a discontinued operation classified as held for sale in accordance with paragraphs 205-20-45-3B through 45-3C shall not be allocated to the major classes of assets and liabilities of the discontinued operation.” Therefore, an entity typically presents a valuation allowance or contra asset account to adjust the component to its fair value less cost to sell when presenting the major classes of assets. The valuation allowance or contra asset account is adjusted for any subsequent changes in the entity’s estimate of fair value less cost to sell. Although ASC 360-10 does not provide guidance similar to that in ASC 205-20-45-11, we believe that the same principle may be applied to disposal groups that do not qualify for reporting as a discontinued operation. In addition, the measurement guidance in ASC 360-10 does not apply to foreclosed assets accounted for under ASC 310-40 or investments accounted for under ASC 830.

3.5.1 Order of Impairment Testing When a Disposal Group Is Held for Sale

ASC 360-10

35-39 The carrying amounts of any assets that are not covered by this Subtopic, including goodwill, that are included in a disposal group classified as held for sale shall be adjusted in accordance with other applicable GAAP prior to measuring the fair value less cost to sell of the disposal group. Paragraphs 350-20-40-1 through 40-7 provide guidance for allocating goodwill to a lower-level asset group to be disposed of that is part of a reporting unit and that constitutes a business. Goodwill is not included in a lower-level asset group to be disposed of that is part of a reporting unit if it does not constitute a business.

As indicated in Section 3.2, a disposal group may include not only long-lived assets that are within the scope of ASC 360-10 but also other assets such as receivables, inventory, indefinite-lived intangible assets, or goodwill. When assets other than long-lived assets are present within a disposal group, it is necessary for an entity to follow a required order for testing the assets within the disposal group when recognizing the disposal group at the lower of its carrying amount or fair value less cost to sell. The following flowchart illustrates the required order of impairment testing when assets are classified as held for sale:

This order ensures that the carrying amounts of any assets that are impaired are adjusted before the carrying amount of the disposal group is determined. The assets that are outside the scope of ASC 360-10 are expected to be routinely assessed for impairment in accordance with applicable GAAP even before they are classified as held for sale. However, in performing this step, an entity must consider whether it would be required to recognize an impairment as a result of any changes in facts or circumstances. The process for testing assets for impairment does not change when such assets are included in a disposal group; however, expectations about the amount to be obtained as part of the sale transaction for the disposal group may serve as additional evidence of an asset’s value.

If the disposal group is itself a reporting unit, the goodwill of the reporting unit is assigned to the disposal group in accordance with ASC 350-20-40-1. In such cases, the entity should consider whether a triggering event has occurred that requires the entity to test the reporting unit’s goodwill for impairment in between annual testing dates. Any impairment is recognized as it normally would be under ASC 350-20.

Under ASC 350-20-40-2, if the disposal group is a portion of a reporting unit that meets the definition of a business, any goodwill associated with that business must be assigned to the disposal group. ASC 350-20-40-3 through 40-6 provide guidance on determining the amount to include in the disposal group, but the amount is generally determined on a relative fair value basis. Because the goodwill has been taken out of the larger reporting unit and the disposal group may be a smaller unit of account, an entity should assess whether there is an indicator that goodwill assigned to the disposal group is impaired. That is, once goodwill is assigned to a disposal group, the disposal group effectively becomes its own reporting unit and is assessed for impairment. Any impairment is recognized as it normally would be under ASC 350-20. ASC 350-20-40-7 also requires that the entity consider whether the goodwill remaining in the portion of the reporting unit to be retained is impaired.

After completing the above assessments, the entity then compares the carrying amount of the disposal group with its fair value less costs to sell and recognizes an impairment for the excess. At this point, the disposal group is the unit of account. As discussed further in Section 3.5, the entity would not write down or impair individual assets in the disposal group; rather, the entity would recognize a valuation allowance to adjust the carrying amount of the disposal group to its fair value less costs to sell.

The entity should keep in mind that the order for testing when a disposal group is classified as held for sale differs for long-lived assets and goodwill when an asset group is classified as held and used (see Section 2.3.7).

Connecting the Dots

In March 2021, the FASB issued ASU 2021-03, which allows private companies and NFPs to use an accounting alternative for performing the goodwill impairment triggering event evaluation. Specifically, the ASU gives a private company or NFP the option of performing the goodwill impairment triggering event evaluation required by ASC 350-20, as well as any resulting goodwill impairment test, as of the end of the entity’s interim or annual reporting period, as applicable.

The alternative provided by the ASU applies only to monitoring goodwill for impairment triggering events; it does not change existing requirements for private companies and NFPs to monitor their long-lived assets and other assets for triggering events, and perform any required impairment tests, during the reporting period. As a result, a private company or NFP that has adopted ASU 2021-03 would not assess goodwill for triggering events until the end of its next reporting period.

3.5.2 Measuring the Fair Value of a Disposal Group

The fair value of a disposal group is measured in accordance with ASC 820. ASC 820 does not require entities to use a specific valuation technique for measuring fair value. However, ASC 360-10-35-36 indicates that “for long-lived assets (asset groups) that have uncertainties both in timing and amount, an expected present value technique will often be the appropriate technique with which to estimate fair value.” Entities should use all available evidence in determining the fair value of a disposal group.

Example 3-4

Company T determines that a long-lived asset meets the criteria to be classified as held for sale in its year-end financial statements and, in accordance with ASC 360-10, reduces the asset’s carrying value to its estimated fair value less cost to sell. After year-end but before its financial statements are issued, T enters into an agreement to sell the asset for an amount less than the estimated fair value used in the measurement of the asset’s carrying amount as of the reporting date.

Company T should evaluate whether the evidence of fair value provided by the agreement to sell reached after the balance sheet date is indicative of conditions that existed as of the balance sheet date. If T concludes that the agreed-upon sales price constitutes additional evidence of the asset’s fair value as of the balance sheet date, T should reflect that fair value in assessing fair value less cost to sell as of the balance sheet date.

See Section 2.5.1 for an overview of the principles of ASC 820. For more detailed information about measuring fair value, see Deloitte’s Roadmap Fair Value Measurements and Disclosures (Including the Fair Value Option).

3.5.2.1 Foreclosed Assets (For Entities That Have Adopted ASU 2016-13)

ASC 360-10

35-41 See paragraphs 310-20-35-12D and 310-20-40-12 for guidance related to determination of cost basis for foreclosed assets under Subtopic 310-20 and the measurement of cumulative losses previously recognized under paragraph 360-10-35-40.

ASC 360-10-35-41 provides an exception from the general measurement provisions for held-for-sale assets for foreclosed assets. That is, ASC 310-40-40-3 states:

A creditor that receives long-lived assets that will be sold from a debtor in full satisfaction of a receivable shall account for those assets at their fair value less cost to sell, as that term is used in paragraph 360-10-35-43. The excess of the amortized cost basis satisfied over the fair value of assets received (less cost to sell, if required above) is a loss that shall be recognized. For purposes of this paragraph, losses, to the extent they are not offset against allowances for uncollectible amounts or other valuation accounts, shall be included in measuring net income for the period. The amortized cost basis is used in paragraphs 310-40-25-1 through 25-2; 310-40-35-7; 310-40-40-2 through 40-8; and 310-40-50-1 instead of carrying amount of the receivable because the latter is net of an allowance for estimated uncollectible amounts or other valuation account, if any, while the former is not.

In addition, in accordance with ASC 360-10-45-12, if the lender acquires foreclosed assets but intends to resell them in a short period of time, entities must classify a newly acquired long-lived asset or disposal group as held for sale as of the acquisition date if both of the following conditions are met:

“[T]he one-year requirement in paragraph 360-10-45-9(d) is met (except as permitted by [paragraph 360-10-45-11]).”
“[A]ny other criteria in paragraph 360-10-45-9 that are not met at [the acquisition] date are probable of being met within a short period following the acquisition (usually within three months).”

See Section 3.5.5 for more information about newly acquired assets that the entity intends to sell upon acquisition.

3.5.3 Costs to Sell

ASC 360-10

Measurement of Expected Disposal Loss or Gain

35-38 Costs to sell are the incremental direct costs to transact a sale, that is, the costs that result directly from and are essential to a sale transaction and that would not have been incurred by the entity had the decision to sell not been made. Those costs include broker commissions, legal and title transfer fees, and closing costs that must be incurred before legal title can be transferred. Those costs exclude expected future losses associated with the operations of a long-lived asset (disposal group) while it is classified as held for sale. Expected future operating losses that marketplace participants would not similarly consider in their estimates of the fair value less cost to sell of a long-lived asset (disposal group) classified as held for sale shall not be indirectly recognized as part of an expected loss on the sale by reducing the carrying amount of the asset (disposal group) to an amount less than its current fair value less cost to sell. If the sale is expected to occur beyond one year as permitted in limited situations by paragraph 360-10-45-11, the cost to sell shall be discounted.

ASC 360-10-35-38 states, in part, that “[c]osts to sell are the incremental direct costs to transact a sale, that is, the costs that result directly from and are essential to a sale transaction and that would not have been incurred by the entity had the decision to sell not been made.” Examples of costs to sell include legal and other professional fees, broker fees, and title transfer fees. Costs to sell do not include costs that would have been incurred if the assets were not sold, such as rent, insurance, utilities, or security services. Costs to sell also do not include costs that are within the scope of ASC 420-10, such as one-time termination benefits, lease termination costs, facility closing costs, and employee relocation costs. In addition, upon sale of a disposal group, an entity may repay debt secured by the assets of the disposal group. Regardless of whether the entity was required, or chose, to extinguish the debt, we do not believe that any extinguishment gains or losses or prepayment penalties should be included in the costs to sell since such amounts are related to how the entity finances its operations and are not a cost of selling the disposal group.

Recognition of a disposal group at the lower of its carrying amount or fair value less costs to sell may result in the recognition of costs to sell in the entity’s statement of operations before such costs would have otherwise been incurred. For example, assume that an entity expects to sell a disposal group with a $10 carrying amount for $9 to be received from the buyer while incurring $1 to sell in the form of professional services to be received in the future to facilitate the disposal. In this example, the entity would record a $2 loss upon classifying the disposal group as held for sale and would recognize the $2 as a valuation allowance or contra asset (see Section 3.5). When the costs to sell are paid, the payment would reduce the valuation allowance or contra asset, thereby increasing the carrying amount of the disposal group in such a way that the carrying amount would equal the expected amount to be received from the buyer at the time of sale. If, however, the entity expects to recognize a gain from the sale of the disposal group, any costs to sell would be expensed as incurred.

3.5.4 Loss That Exceeds the Carrying Amount of Long-Lived Assets Within the Disposal Group

In some cases, the loss that would be incurred to write down a disposal group to its fair value less costs to sell may exceed the carrying amount of the long-lived assets within that group. Views differ on how to account for such an excess.

ASC 360-10 does not require entities to record a loss in excess of the carrying amount of the long-lived assets within the group. Paragraph B92 of the Background Information and Basis for Conclusions of FASB Statement 144 stated, in part:

[T]he Board decided that because other accounting pronouncements prescribe the accounting for assets and liabilities not covered by this Statement that are included in a disposal group, a loss recognized for a disposal group classified as held for sale should reduce only the carrying amounts of the long-lived assets of the group. The Board concluded that the allocation method for a loss recognized for a disposal group classified as held for sale provides a reasonable basis for reporting both the assets and liabilities of the disposal group in the statement of financial position. [Emphasis added]

In prepared remarks at the 2008 AICPA Conference on Current SEC and PCAOB Developments, Adam Brown, a professional accounting fellow in the SEC’s Office of the Chief Accountant, addressed this scenario, stating, in part:

Consider a fact pattern in which a disposal group held for sale was established that consisted of long-lived assets in the form of property & equipment, as well as other assets such as trade receivables, and inventory. An estimate of the group’s fair value, less its costs to sell, was lower than the group’s carrying value. Further, the difference between the disposal group’s fair value and its carrying value exceeded the existing net book value of long-lived assets. This might lead you to a question: “Should you recognize a liability for the loss in excess of the carrying amount of the long-lived assets, and, if so, what does it represent?”

I can think of two views for this particular fact pattern. One approach is to record the loss in excess of the carrying amount of the long-lived assets as a reduction to the carrying value of the entire group, effectively reducing trade receivables and inventory. A second approach is to limit the impairment to the carrying value of the long-lived assets in the disposal group.

The first view interprets paragraph 34 of Statement 144 [codified as ASC 360-10-35-43] to redefine the unit of account as the disposal group and to record it at the lower of its carrying amount or fair value less cost to sell. In effect, the individual assets lose their identity, even though the recoverability of AR and inventory are addressed by other GAAP.

The second view looks at paragraph 37 of Statement 144 [codified as ASC 360-10-35-40], which indicates a “loss . . . shall adjust only the carrying amount of a long-lived asset, whether classified as held for sale individually or as part of a disposal group.” This approach would limit the loss to the carrying value of the long-lived assets. There seems to be an additional level of simplicity in the second view in that it does not result in the recognition of what, in effect, is a liability created by an asset impairment model. . . .

After considering these two views, we ultimately concluded that we would not object to either interpretation of the literature. If companies expect to incur a loss on sale in excess of the impairment associated with long-lived assets, it may be an indicator that other assets such as AR and inventory are impaired. In any event, we believe that registrants who use the first view should clearly disclose where such amounts are reflected in the financial statements and whether additional losses are expected in the future.

An entity should consider whether all necessary impairments have been taken on the other assets and whether any specialized accounting may prevent the entity from recording the loss at the time the disposal group is tested for impairment. Further, an entity should consider other accounting literature (e.g., ASC 450-20) to determine whether it has incurred a liability that may have to be accrued.

3.5.5 Newly Acquired Long-Lived Assets

ASC 360-10

Newly Acquired Asset Classified as Held for Sale

45-12 A long-lived asset (disposal group) that is newly acquired and that will be sold rather than held and used shall be classified as held for sale at the acquisition date only if the one-year requirement in paragraph 360-10-45-9(d) is met (except as permitted by the preceding paragraph) and any other criteria in paragraph 360-10-45-9 that are not met at that date are probable of being met within a short period following the acquisition (usually within three months).

An entity acquiring a business may intend to sell some of its long-lived assets shortly after the acquisition date. ASC 805-20-30-22 requires an acquirer to “measure an acquired long-lived asset (or disposal group) that is classified as held for sale at the acquisition date in accordance with Subtopic 360-10, at fair value less cost to sell in accordance with paragraphs 360-10-35-38 and 360-10-35-43.” ASC 360-10-45-12 requires entities to classify a newly acquired long-lived asset or disposal group as held for sale as of the acquisition date if both of the following conditions are met:

“[I]f the one-year requirement in paragraph 360-10-45-9(d) is met (except as permitted by [paragraph 360-10-45-11]).”
“[A]ny other criteria in paragraph 360-10-45-9 that are not met at [the acquisition] date are probable of being met within a short period following the acquisition (usually within three months).”

Accordingly, as specified in ASC 360-10-45-12, the acquirer must satisfy the one-year criterion in ASC 360-10-45-9(d) as of the acquisition date, but it can satisfy the other criteria in ASC 360-10-45-9 if they “are probable of being met within a short period following the acquisition (usually within three months).” If the long-lived asset or disposal group cannot be classified as held for sale, the assets and liabilities would be measured in accordance with the requirements in ASC 805 (i.e., generally at fair value). See Section 5.6 for information about discontinued-operations reporting related to a newly acquired business or nonprofit activity.

3.6 Subsequent Measurement While a Disposal Group Is Classified as Held for Sale

ASC 360-10

35-40 A loss shall be recognized for any initial or subsequent write-down to fair value less cost to sell. A gain shall be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized (for a write-down to fair value less cost to sell). The loss or gain shall adjust only the carrying amount of a long-lived asset, whether classified as held for sale individually or as part of a disposal group.

The fair value less costs to sell of a disposal group must be reassessed in each reporting period in which it is classified as held for sale. In accordance with ASC 360-10-35-40, “[a] loss shall be recognized for any initial or subsequent write-down to fair value less cost to sell” while “[a] gain shall be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized (for a write-down to fair value less cost to sell).”

Example 3-5

On January 31, 20X8, Company T announces a plan to move to a new corporate headquarters. According to the plan, T expects to vacate and sell the company-owned office building that currently houses its corporate headquarters. On April 30, 20X8, T completes the move and has met the criteria to classify the property as held for sale. As of that date, the carrying value of the property is $21 million and T estimates that the fair value less cost to sell is $16 million (including $1 million in estimated sale costs). Accordingly, T recognizes a loss of $5 million.

As of December 31, 20X8, T had not yet sold the property; however, because of improved conditions in the real estate market, T estimates that the fair value less costs to sell of the property is $18 million. Therefore, in its December 31, 20X8, financial statements, T recognizes a gain of $2 million because the increase is less than the cumulative loss previously recognized.

3.6.1 Depreciation and Amortization

Long-lived assets to be sold will be recovered through sale and not through future operations. Therefore, long-lived assets are not depreciated or amortized once they are classified as held for sale in accordance with ASC 360-10-35-43. Although an entity may still be using the assets and obtaining benefits from their use, the FASB concluded, as noted in FASB Statement 144, that continuing to depreciate or amortize them is “inconsistent with the use of a lower of carrying amount or fair value measure for a long-lived asset classified as held for sale.”

In addition, because ROU assets are within the scope of ASC 360-10, we believe that the guidance in ASC 360-10-35-43 applies to ROU assets included in a disposal group. Therefore, entities should cease amortization of any ROU assets once the disposal group meets the held-for-sale criteria, just as they would for any other asset within the scope of ASC 360-10, even though the interest on any related lease liabilities should continue to be accreted in accordance with ASC 842.

3.7 Long-Lived Assets to Be Disposed of in Exchange for Noncash Assets in a Transaction Accounted for at Fair Value

Sometimes a disposal group is to be disposed of in exchange for an asset or assets other than cash. If the disposal group is to be exchanged in a transaction accounted for at fair value, we believe that it should be classified as held for sale once the classification criteria are met. That is, regardless of whether the form of the consideration received is cash or noncash assets, such an exchange would represent a sale of the disposal group. The following are examples of exchange transactions accounted for at fair value:

Contributions of long-lived assets to an entity in exchange for a noncontrolling investment in that entity (e.g., an equity method investment or a joint venture investment).
A nonmonetary exchange that does not meet any of the conditions in ASC 845-10-30-3 and is therefore measured at fair value. (See Section 4.3 for information on situations in which the nonmonetary exchange meets any of those conditions and must be accounted for at its carrying amount.)

3.8 Recognition of a Gain or Loss Upon Sale of the Disposal Group

ASC 360-10

40-3A An entity shall account for the derecognition of a nonfinancial asset, including an in substance nonfinancial asset and an asset subject to a lease, within the scope of this Topic in accordance with Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets, unless a scope exception from Subtopic 610-20 applies. For example, the derecognition of a nonfinancial asset in a contract with a customer shall be accounted for in accordance with Topic 606 on revenue from contracts with customers.

40-3B An entity shall account for the derecognition of a subsidiary or group of assets that is either a business or nonprofit activity in accordance with the derecognition guidance in Subtopic 810-10.

40-3C If an entity transfers a nonfinancial asset in accordance with paragraph 360-10-40-3A, and the contract does not meet all of the criteria in paragraph 606-10-25-1, the entity shall not derecognize the nonfinancial asset and shall follow the guidance in paragraphs 606-10-25-6 through 25-8 to determine if and when the contract subsequently meets all the criteria in paragraph 606-10-25-1. Until all the criteria in paragraph 606-10-25-1 are met, the entity shall continue to do all of the following:

Report the nonfinancial asset in its financial statements
Recognize depreciation expense as a period cost unless the assets have been classified as held for sale in accordance with paragraphs 360-10-45-9 through 45-10
Apply the impairment guidance in Section 360-10-35.

Recognition of Gain or Loss From Sale

40-5 A gain or loss not previously recognized that results from the sale of a long-lived asset (disposal group) shall be recognized when the long-lived asset (disposal group) is derecognized in accordance with applicable Topics (for example, Topic 610 on other income, Topic 810 on consolidation, or Topic 860 on transfers and servicing).

ASC 360-10-40-5 specifies that an entity recognizes any previously unrecognized gain or loss from the sale of the disposal group when derecognizing the assets, liabilities, and AOCI in accordance with applicable GAAP. The following decision tree from ASC 610-20 depicts the process for determining which guidance an entity should apply when derecognizing a disposal group, depending on the nature of the assets or the transaction.

ASC 610-20

15-10 The following decision tree depicts the process for evaluating whether assets promised to a counterparty in a contract (or parts of a contract) shall be derecognized within the scope of this Subtopic. The decision tree is not intended as a substitute for the guidance in this Subtopic.

For more information about the application of ASC 610-20, see Deloitte’s Roadmap Revenue Recognition. For more information about the application of ASC 810, see Deloitte’s Roadmap Consolidation — Identifying a Controlling Financial Interest.

3.9 Changes to a Plan of Sale

ASC 360-10

Changes to a Plan of Sale

35-44 If circumstances arise that previously were considered unlikely and, as a result, an entity decides not to sell a long-lived asset (disposal group) previously classified as held for sale, the asset (disposal group) shall be reclassified as held and used. A long-lived asset that is reclassified shall be measured individually at the lower of the following:

Its carrying amount before the asset (disposal group) was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the asset (disposal group) been continuously classified as held and used
Its fair value at the date of the subsequent decision not to sell.

35-45 If an entity removes an individual asset or liability from a disposal group previously classified as held for sale, the remaining assets and liabilities of the disposal group to be sold shall continue to be measured as a group only if the criteria in paragraph 360-10-45-9 are met. Otherwise, the remaining long-lived assets of the group shall be measured individually at the lower of their carrying amounts or fair values less cost to sell at that date.

45-10 If at any time the criteria in [ASC 360-10-45-9] are no longer met (except as permitted by [ASC 360-10-45-11]), a long-lived asset (disposal group) classified as held for sale shall be reclassified as held and used in accordance with paragraph 360-10-35-44.

ASC 205-20

45-1F If at any time the criteria in paragraph 205-20-45-1E are no longer met (except as permitted by paragraph 205-20-45-1G), an entity to be sold that is classified as held for sale shall be reclassified as held and used and measured in accordance with paragraph 360-10-35-44.

If, at any time, the held-for-sale criteria are no longer met, the disposal group should be reclassified as held and used and should be measured, in accordance with ASC 360-10-35-44, at the lower of:

“Its carrying amount before the asset (disposal group) was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the asset (disposal group) been continuously classified as held and used.”
“Its fair value at the date of the subsequent decision not to sell.”

In addition, as of the date on which the held-for-sale criteria are no longer met, the statement of financial position and notes to the financial statements should no longer separately identify the assets and liabilities of the disposal group as held for sale, and any amounts that had been reported in discontinued operations should be reclassified to continuing operations for all periods presented.

In some cases, an entity may decide to retain an asset or liability that it had previously determined to be part of a disposal group classified as held for sale. ASC 360-10-35-45 states, in part, that “[i]f an entity removes an individual asset or liability from a disposal group previously classified as held for sale, the remaining assets and liabilities of the disposal group to be sold shall continue to be measured as a group only if the [held-for-sale criteria] are met.”

Example 3-6

Company C has a wholly owned subsidiary, Subsidiary D. Subsidiary D represents a component of C. Company C plans to dispose of D in its entirety and, at the end of the first quarter, C determines that D meets the criteria to be classified as held for sale and reported as a discontinued operation.

In the third quarter, C decides to retain certain fixed assets of D while continuing to pursue a disposal of D’s remaining net assets and operations. In accordance with ASC 360-10-45-10, in the third quarter, C reclassifies to assets held and used the fixed assets it no longer seeks to dispose of and measures those fixed assets at the lower of (1) their carrying amounts before being classified as held for sale less depreciation expense that would have been recognized if they had not been classified as held for sale or (2) the fair value as of the date of the subsequent decision not to sell. Company C must reassess whether D’s remaining net assets and operations continue to meet the criteria for classification as held for sale and, if so, whether the criteria for reporting as a discontinued operation continue to be met.

3.10 Consideration of Subsequent Events for Assessing Held-for-Sale Classification

ASC 360-10

45-13 If the criteria in paragraph 360-10-45-9 are met after the balance sheet date but before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25), a long-lived asset shall continue to be classified as held and used in those financial statements when issued or when available to be issued. In addition, information required by paragraph 205-20-50-1(a) shall be disclosed in the notes to financial statements. If the asset (asset group) is tested for recoverability (on a held-and-used basis) as of the balance sheet date, the estimates of future cash flows used in that test shall consider the likelihood of possible outcomes that existed at the balance sheet date, including the assessment of the likelihood of the future sale of the asset. That assessment made as of the balance sheet date shall not be revised for a decision to sell the asset after the balance sheet date. Because it is difficult to separate the benefit of hindsight when assessing conditions that existed at a prior date, it is important that judgments about those conditions, the need to test an asset for recoverability, and the application of a recoverability test be made and documented together with supporting evidence on a timely basis. An impairment loss, if any, to be recognized shall be measured as the amount by which the carrying amount of the asset (asset group) exceeds its fair value at the balance sheet date.

ASC 360-10-45-13 states that if the held-for-sale criteria “are met after the balance sheet date but before the financial statements are issued or are available to be issued” (as discussed in ASC 855-10-25), the long-lived asset (or disposal group) is “classified as held and used in those financial statements when issued or when available to be issued.” This paragraph further indicates that an entity should disclose the information required by ASC 205-20-50-1(a) in the notes to financial statements. If a component either meets the held-for-sale criteria or is disposed of “after the balance sheet date but before the financial statements are issued or are available to be issued,” entities should also consider the disclosure requirements in ASC 855-10-50 related to nonrecognized subsequent events.

While ASC 205-20 does not include similar guidance, we believe that entities should apply it to disposal groups that qualify for discontinued-operations reporting. Similarly, we think that if the held-for-sale criteria are met before the balance sheet date but are no longer met when the financial statements are issued or are available to be issued, the disposal group should be classified as held for sale in the financial statements. We also believe that an entity should consider providing the disclosures in ASC 205-20-50-3 (see Section 7.7.1) about its change in plan. See Section 3.9 for guidance on the accounting in situations in which an entity has a change in its plan of sale.

Further, ASC 360-10-45-13 goes on to say that “[i]f the asset (asset group) is tested for recoverability (on a held-and-used basis) as of the balance sheet date, the estimates of future cash flows used in that test shall consider the likelihood of possible outcomes that existed at the balance sheet date, including the assessment of the likelihood of the future sale of the asset. That assessment made as of the balance sheet date shall not be revised for a decision to sell the asset after the balance sheet date” (see Section 2.4.2).